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CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets

A brokerage's research department learns of material nonpublic information about an issuer. Which compliance measure is most likely to prevent the information from reaching the firm's trading desk?

An information barrier, or firewall, between the departments is the most appropriate measure. It restricts the flow of material nonpublic information so that trading personnel cannot act on it. Verbal sharing or selective disclosure would spread the information and increase the risk of a Standard II(A) violation.

  1. AAllowing analysts to share it only verbally
  2. BAn information barrier between the departmentsCorrect
  3. CDisclosing it to clients on request

Explanation

A firewall or information barrier restricts the flow of material nonpublic information between departments, such as research and trading. Verbal sharing and selective client disclosure still spread the information and risk misuse.

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